Real Estate agents and the property market

[The_Pharoah]

hi guys

I live in Qld and am dumbfounded everyday when I have a look at re.com.au at how the prices have skyrocketed. I've always wondered - exactly what role in the 'market price' does an RE agent actually play? I mean, take Goodna (west of brisbane) - I sold my property for $220k in Dec (highest sale prev was $210k) so I pushed the 'mkt price' for Goodna up to $220k (listed at $225k on advice from the RE agent). Suddenly, every house sold thereafter was listed atleast at $225k.

Anyway, I'm wondering - RE agents have a DIRECT link to the market prices of property. Is this correct?

 

[Ahmad Azimi]

That's a very good question. We dont have a 100% answer but it could be yes. The main aim of a REA should be to get the highest price possible which could be a factor in increasing the prices.

Residential properties are always valued by Direct Comparison with other properties. So when the valuer or REA does the valuation or appraisal of another property which is similar to yours then he will compare it with the price you sold it for or vice-versa. That could be the reason why all the properties listed after you sold yours was $225k.

But then again what also pushes up the prices are:

* Supply and Demand
* Labour Costs
* Inflation
* Cost of materials
* Population
* Immigration (which contributes to population)
etc.

I wonder if there will be a time when property prices stop growing for ever.

 

[angela]

I have wondered the same thing. I have been looking for a property in North Ipswich for a couple of months, and it seems every week the lowest price is $10,000 more than the week before, which sets a new benchmark. I bought a house in Nth Ipswich yesterday. If only it had been listed a month ago, it would probably have been much cheaper
Stage 2 of the new Riverlink shopping centre opened here last Thursday, so I'm wondering what that will do to prices, as when stage 1 opened, prices seemed to skyrocket overnight.....

 

[urban cowboy]

Anyway, I'm wondering - RE agents have a DIRECT link to the market prices of property. Is this correct?

Hi Pharoah, in short - the answer is yes and no.

Agents are obviously responsible for obtaining the best price for their vendors during the sale process, but there are a number of factors that affect how that price is obtained.

In a rising market like we have in and around Brisbane now, its fairly easy. Qld agents when providing an appraisal price, must look at comparable properties within a 5km radius that have sold in the last 6 months. We have to find three comparables to be able to provide a figure to the owner (there are other ways too, but this demonstrates my point).

In a rising market - we have a look around and if three or more comparable properties have SOLD for 215k, then that's a fair indication of the market value - but remember we already know that prices are on the up...and you're not going to list at 215k are you...so you list higher (i like to stay close to 4% of the expected sale price if i can) at a figure the vendor is happy with (within reason) and see what happens...as prices are going up, it is inevitable that agents will use your sale as a comparable where they can and demonstrate to their owners pricing in the area - hence they will list higher again...whilst people will pay that sort of money, prices keep going up.

We can't control the market forces of supply and demand, what we can do though is read the market pretty well and you come to know where things are heading and how high to list...whilst demand is high, you will see prices continue to rise until it comes to the point where people just don't want to pay that anymore - no demand.

so yes, we agents are linked directly to the market price because we provide information and advice to vendors on what the marketplace is doing...but we don't control the marketplace and the same works in reverse - if the demand is not there, you will see prices dropping too.

does that make sense??? sorry the coffee hasn't kicked in yet!!

 

[Xenia]

We have done about 16 sales in the past 3 months. All were sold very quickly and above the "median" price for that area. One house was appraised by us at $270,000 due to comparables of similar size and age. The owners would have been happy with $250,000. We tried our luck and advertised it at $290,000. It sold for $310,000

Sometimes it's just the demands of the market. But in this kind of demand REAs look at the highest price sold and try to beat it. I think it's a combination of both.

 

[Harris]

I would think that RE agents have an indirect and a very small link to the value of the property.

If you study the supply and demand principle in detail within real estate market, you would realise that agents play a very small role in pushing the prices up - even when they act in tandem.

They might aid in creating the hype in a growing market, and this must be as far as their role goes in pushing the prices up.

Agents can try all they want in a static market however its not going to create any pressure for the cap growth. - Only a strong rising market helps their cause in pitching next prop at a higher value than the last property sold - however if the demand is not there, no-one will want to pay the high price.

Harris

hi guys


Anyway, I'm wondering - RE agents have a DIRECT link to the market prices of property. Is this correct?

 

[Vodka]

The owners would have been happy with $250,000. We tried our luck and advertised it at $290,000. It sold for $310,000

Good job. The owners are lucky that they didn't try to sell it themselves with one of those 'private sales' they may have done themselves out of lots of money by taking the first offer above $250,000.

 

[Kevin Hockey]

It's always interesting watching various threads in the forum, one minute agents are scoundrels for under valuing properties, being lazy and not getting a high enough price etc etc and then we have posts like this one which suggests REA's have some Godlike power to change market forces.

Reality is Agents just sell properties, they are middle men who help buyer and seller liase a deal on the property. Yes, ideally they will get the premium price for the owner however, reality unfortunately is most don't receive adequate support and training to have the skills to do so.

I've worked through the 90's when prices remained as flat as a cane toad on the Bruce Highway to the boom 2000 - 2003 and agents had absolutely no effect in either market. Qld prices are spiralling again but not because of anything any agent is doing. Agents have an important place in the process of selling real estate, but to claim any ability to effect the market place is drawing a very long bow.

World peace, now thats something agents can change......just kidding

Kev
www.gogecko.com.au

 

[The_Pharoah]

thanks for the replies all. I really laughed when I read the responses to hear from REA's. Don't get me wrong - I don't think they have 'God-like powers' but I do think they play a pivotal role in the scheme of things. lol

Being an accountant, I understand the demand/supply forces that economics 101 teach us (eg. Brisbane - high demand, low supply = higher prices). However, as I stated in my original email, they do play a pivotal role eg. the avg buyer looks on realestate.com.au to scope out housing but sees houses in a particular area at say $350k (even though the REA's know the median price is roughly $320k) - all the other REA's then use the $350k price as a benchmark (or comparison)....net effect is the avg user now 'assumes' the mkt price for a house in that area is approx $350k.

 

[Kevin Hockey]

thanks for the replies all. I really laughed when I read the responses to hear from REA's. Don't get me wrong - I don't think they have 'God-like powers' but I do think they play a pivotal role in the scheme of things. lol

Being an accountant, I understand the demand/supply forces that economics 101 teach us (eg. Brisbane - high demand, low supply = higher prices). However, as I stated in my original email, they do play a pivotal role eg. the avg buyer looks on realestate.com.au to scope out housing but sees houses in a particular area at say $350k (even though the REA's know the median price is roughly $320k) - all the other REA's then use the $350k price as a benchmark (or comparison)....net effect is the avg user now 'assumes' the mkt price for a house in that area is approx $350k.

Hi Pharoah,

With respect, I can't ever in my 11 year career remember any buyer talking about the average price when considering buying a property. A buyer will look at a number of properties, official average is 14, before purchasing, and will compare those prices and judge fair value when making an offer based on those comparisons. Facts are that this forum looks at buying completely from an investors perspective but reality is majority of buyers are owner occupiers and they don't even contemplate averages. And even then, many investors are not too savy, obviously they haven't been to the Somersoft forum , and buy just based on market value.

Rarely does a buyer pay any significant amount above market value.
I can remember one out of about my last 100 who paid 920k for what I thought was worth around 850k (and the owner said he would have taken that), but it was a canalfront home and when you have something unique and well presented occassionally that can happen. Even on this occassion it was not from any specific influence by me, they just fell in love with it......

A good agent can influence the sale process but more from ensuring a quality marketing campaign to generate max buyer enquiry, good photography and scripts, using database, returning calls and emails, negotiating professionally etc....but buyers will decide what they will pay and that will be based on what they perceive as value for money based on what they have seen for sale and has sold recently. Unless you get an agent prepared to lie through his teeth and make entirely unrealistic promises and over exaggerates numbers, but thankfully I honestly can only think of a couple like that and they are slowly being weeded out of the industry.

Kev
www.gogecko.com.au

 

[Harris]

I am not a real estate agent Pharoh, however think its very naive of you if you believe that real estate agents have a pivotal role in pushing the prices up.

I am yet to see any serious discussion on it and any documentary evidence that would suggest thats the case.

The nature of the property market is such that unlike (fast moving consumer goods) they have a scarcity value attached to it and every time you see one block selling for $300k, its very natural that the next block will be priced at or close to $325 or $350k in a very buoyant market in a high demand area.
REA's have a role of facilitating buyers and sellers whilst keeping sellers interest at heart (since he pays them).

In a static market, where demand is absent, real estate agents could do their utmost possible and wont be able to increase the price points even if it meant acting in tandem (like cartels do) to unanimously keep the minimum price up from actual market threshold.

Conversely in a high demand area the buyers are falling over themselves to get the property and hence outbidding each other (which immediately relates to sudden increase in price points) without agents having to do anything. I have seen it happen many many times.

Remember, that the bank allows up to 100% finance on the properties and a conservative institution like bank will never allow to lend anything more than 70% on a piece of land where it believes the real value has been inflated by estate agents by a certain proportion.

Harris

thanks for the replies all. I really laughed when I read the responses to hear from REA's. Don't get me wrong - I don't think they have 'God-like powers' but I do think they play a pivotal role in the scheme of things. lol

Being an accountant, I understand the demand/supply forces that economics 101 teach us (eg. Brisbane - high demand, low supply = higher prices). However, as I stated in my original email, they do play a pivotal role eg. the avg buyer looks on realestate.com.au to scope out housing but sees houses in a particular area at say $350k (even though the REA's know the median price is roughly $320k) - all the other REA's then use the $350k price as a benchmark (or comparison)....net effect is the avg user now 'assumes' the mkt price for a house in that area is approx $350k.

 

[Kevin Hockey]

Remember, that the bank allows up to 100% finance on the properties and a conservative institution like bank will never allow to lend anything more than 70% on a piece of land where it believes the real value has been inflated by estate agents by a certain proportion.

Harris

Hi Harris,

Whilst I understand your point, you may get a bg shock to know what banks will allow some people to do even if a val doesn't stack up, so long as they are covered. Just ask any of those investors caught in the scams by developers over recent years. Some banks were right in the thick of it knowing full well the property was sold significantly over market price.

Kev
www.gogecko.com.au

 

[Harris]

I agree and aware of the val that banks looked at whilst Kaye was buying through one hand and selling the other at a big mark up fully financed by the banks.

As a general policy (outside of individual scams) the bank lending the money at a very conservative interest rate would make sure that the risk is comprehensively mitigated by valuing the property at a fair value market value and allowing 100% lend against that security.

If there was any evidence that the real estate agents have a large role in spruiking the prop values, which in case of foreclosure (and subsequent loss for the bank) would see banks maximising their lend to a smaller %age of the prop value.

Harris

Hi Harris,

Whilst I understand your point, you may get a bg shock to know what banks will allow some people to do even if a val doesn't stack up, so long as they are covered. Just ask any of those investors caught in the scams by developers over recent years. Some banks were right in the thick of it knowing full well the property was sold significantly over market price.

Kev
www.gogecko.com.au

 

[CairnsAgent]

Actually....
Buyers set the market price..we agents just put the price at comparable market pricing..if a buyer pays more to secure the property, they put comparable prices up, if they "bargain" the vendor down and every house in the streets comparable market value comes down thats also the buyer...Auction is the same, final buy price....is decided by the buyers..not the vendor or the agent.Agents and even vendors just use all the available data at the time to list the property for a fair market price.
O.K this is way over simplifying it...as the other posts suggest, supply, demand, inflation..etc

we all know the old addage.."it's only worth what someone will pay"..

Cheers